Exercise the option or use the spot transaction

Assignment Help Financial Management

Reference no: EM13848470

Assume you import 1 million Euro of computer from Europe from France and you have to make the payment in Euro and pay in September. To hedge against rate uncertainty, you can buy a September option (Euro option has a fixed amount, 125,000 Euro per contract). You would like to have a strike price $1.31 per Euro and the option price is $2500 per contract.

Will you buy the option?

If you buy the option, on the maturity date, the spot rate is $1.34 per Euro, will you exercise the option or use the spot transaction?

If on the maturity date, the spot rate is $1.29 per Euro, will you exercise the option? Please explain.

Reference no: EM13848470

Questions Cloud

Before-tax and after-tax rates-corporate bonds : An investor, Terry Noirs, is in the 40% tax bracket and has been contemplating investing in corporate bonds. After a recent stay at the Eiffel Payne Hospital, a not-for-profit hospital, he learned that they will be issuing tax-exempt bonds for a majo..

Straight line to a set of data yields : 13.1: Fitting a straight line to a set of data yields the following prediction line:

Exercise the option or use the spot transaction : Assume you import 1 million Euro of computer from Europe from France and you have to make the payment in Euro and pay in September. To hedge against rate uncertainty, you can buy a September option. If you buy the option, on the maturity date, the sp..

Discuss three standard configuration and security : In addition, discuss three standard configuration and security tools each OS provides. Search the web and describe two third-party or open source tools that can help with managing your OS's security configuration. In what ways do these third-party to..

Financial records-found old amortization schedule : William Chris opened a steak house a few years ago with his sister, Ruth. In going through their financial records they found an old amortization schedule that their lender had prepared when they took out a loan to start the business.

What interest rate would legally have to be quoted : A local finance company quotes an interest rate of 17 percent on one-year loans. So, if you borrow $31,000, the interest for the year will be $5,270. What interest rate would legally have to be quoted? What is the effective annual rate?

What is equivalent annual interest rate being generated : An individual plans to buy a stock valued at $135 each and keep it for 5 years at which point the things he can sell it for $155. The stock pays an annual dividend of $3.5. What is equivalent annual interest rate being generated by this investment?

User Account

All Pages